Performance review 1H2019 achieved revenue of 7.349 billion yuan, +8.22% year-on-year; net profit of 351 million yuan, -36.36% of the same period; net profit of net income after deduction of 210 million yuan, -46.33% year-on-year. Affected by the escalating trade war between China and the US, the pressure on the company's production and marketing balance has increased, 1H2019's overall operations have slowed, yarn business orders have declined, and the network chain strategy has continued to advance. Among them, the company achieved revenue of 3.634 billion yuan in 2019Q2, -1.12%; net profit of 179 million yuan, -46.16% year-on-year; net profit after deduction of 121 million yuan, minus net profit of 121 million yuan, -52.42% year-on-year. By business, 1H2019's yarn revenue reached 3.665 billion yuan, -9.1% year-on-year, and gross margin -0.23pct to 14.75%; the network chain business achieved revenue of 3.656 billion yuan, +41.35% year-on-year, and gross margin -0.32pct to 4.62% year-on-year. In terms of yarn, the company has now formed five production regions in Zhejiang, Huanghuai, Yangtze, Xinjiang and Vietnam, with a production capacity of 1.89 million ingots as of 1H2019. By region: 1H2019 had export revenue of 1,479 billion yuan, -25% year on year, gross margin -2.60 pct to 10.37% year on year; domestic sales revenue was 5.870 billion yuan, +22% year on year, and gross margin -0.73 pct to 9.52% year on year. 1H2019 gross margin and net profit margin declined, and inventory turnover days increased: in 1H2019, the company's consolidated gross margin was 9.87%, and net interest rate was 4.97%. Gross margin was -2.87pct year-on-year, mainly related to the decline in cotton prices in 1H2019, the decline in yarn and net chain business gross margins, and the increase in the share of net chain business with low gross margin. The sales expense ratio of 1H2019 company was 1.61%, y-0.31pct; the management expense ratio (including R&D expenses) was 3.78%, +0.82pct year-on-year, mainly due to network chain business expansion; the financial expense ratio was 1.83%, +0.47pct year-on-year, mainly due to the increase in loan size and interest rate policy changes; the share of other income (government subsidies) declined year-on-year, and 1H2019 was 1.74%, -0.64pct year-on-year. Overall, the net interest rate was 4.97%, -3.42pct year-on-year. From an operating perspective, the number of inventory turnover days for 1H2019 companies was 147.31 days, +3 days; accounts receivable turnover days were 19.08 days, year-on-year -2 days; and accounts payable turnover days were 10.35 days, year-on-year -17 days. The investment proposal looks forward to the stabilization of orders in the yarn business and the continued advancement of the network chain business in the second half of the year. Net profit for 19-21 is estimated to be 835 million yuan, 933 million yuan, and 1,043 million yuan respectively, and EPS is 0.55, 0.61, and 0.69 yuan respectively. The current market value corresponding to PE is 12, 11, and 10 times, respectively, maintaining the ratings. Risks indicate fluctuations in raw material prices, changes in government subsidies, order fluctuations due to the Sino-US trade war, and exchange rate fluctuations.